UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended..................October 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from................to................
Commission file number....................................0-6375
American Cytogenetics, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2701324
- ----------------------------- --------------
(State or other
jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6440 Coldwater Canyon, North Hollywood, California 91606
-----------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number: (818) 766-1286
-----------------
N/A
-------
(Former name, former address and former fiscal year,
if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the Registrant's Common Stock,
as of December 5, 1995 was 4,481,023.
<PAGE>
AMERICAN CYTOGENETICS, INC.
FORM 10-Q
---------------------------
INDEX
PART I - Financial Information Page
- --------------------------------
Item 1. Financial Statements:
Consolidated Condensed Balance Sheet - 2
October 31, 1995 and January 31, 1995
Consolidated Condensed Statement of Operations -
Three Months Ended October 31, 1995 and 1994 3
Consolidated Condensed Statement of Operations -
Nine Months Ended October 31, 1995 and 1994 4
Consolidated Condensed Statement of Cash Flows -
Nine Months Ended October 31, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 5. Other Information 13
Signatures 14
<PAGE>
Part I - Financial Information
- ----------------------------------
Item I. Financial Statements
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
AT OCTOBER 31, 1995 AND JANUARY 31, 1995
OCT. 31, JAN 31,
ASSETS 1995 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $3,958 $35,279
Accounts Receivables, net 678,271 775,568
Supplies 61,663 49,020
Prepaid Expenses 61,286 101,889
------------ ------------
Total current assets 805,178 961,756
------------ ------------
Equipment and improvement, net 269,087 211,679
Customer list, net 123,110 146,193
Deferred costs and other assets 19,695 18,933
------------ ------------
Total assets $1,217,070 $1,338,561
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt and IRS
obligation $153,171 $68,429
Accounts Payable, trade 561,967 557,462
Cash overdraft 134,659 0
Due to affiliates 70,909 42,619
Other current liabilities 462,846 566,335
------------ ------------
Total current liabilities $1,383,552 $1,234,845
------------ ------------
Long-Term debt and IRS obligation, net of
current portion 619,884 690,105
Other Liabilities 25,000 25,000
------------ ------------
Total liabilities $2,028,436 1,949,950
------------ ------------
Stockholders' deficit
Preferred stock, $10 Par Value
Authorized 300,000 Shares; 32,988 issued
(liquidated value $522,178 and $501,868 at
October 31, 1995 and January 31, 1995,
respectively) 329,880 329,880
<PAGE>
Common stock, $0.01 Par Value
Authorized 20,000,000 shares; 4,540,499 issued
at October 31, 1995 and January 31, 1995 45,405 45,405
Additional paid-in capital 3,803,277 3,803,227
Accumulated deficit (4,913,032) (4,713,055)
Less treasury stock, at cost (76,846) (76,846)
------------ ------------
Total stockholders' deficit (811,366) (611,389)
------------ ------------
Total liabilities and stockholders' deficit $1,217,070 $1,338,561
========== ==========
See accompanying notes to consolidated condensed financial statements
Page 2
</TABLE> <PAGE>
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
October 31,
1995 1994
-------------- --------------
<S> <C> <C>
REVENUES $ 1,127,707 $ 1,415,946
COSTS AND EXPENSES:
Production 789,075 991,128
Selling and marketing 59,029 83,109
General and Administrative 330,858 302,066
------------ --------------
Total costs and expenses 1,178,962 1,376,303
------------ -------------
Operating income (loss) (51,255) 39,643
Other expense (principally interest) 25,064 15,394
------------ ------------
Net income (loss) $ (76,319) $ 24,249
============ ============
Preferred dividend requirements 6,770 6,770
------------ ------------
Net income (loss) applicable to common
shares $ (83,089) $ 17,479
============= =============
Weighted average number of common shares
outstanding 4,481,023 4,481,023
Net income (loss) per common share $ (0.02) $ 0.00
============ ============
See accompanying notes to consolidated condensed financial statements
Page 3
</TABLE> <PAGE>
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
October 31,
1995 1994
-------------- --------------
<S> <C> <C>
REVENUES $ 3,783,384 $ 4,172,833
COSTS AND EXPENSES:
Production 2,636,004 2,932,362
Selling and marketing 220,622 257,967
General and Administrative 1,054,228 958,151
------------ --------------
Total costs and expenses 3,910,854 4,148,480
------------ -------------
Operating income (loss) (127,470) 24,353
Other expense (principally interest) (72,507) 43,335
------------ ------------
Net loss $ (199,977) $ (18,982)
============ ============
Preferred dividend requirements 20,310 20,310
------------ ------------
Net loss applicable to common shares $ (220,287) $ (39,292)
============ ============
Weighted average number of common shares
outstanding 4,481,023 4,481,023
Net loss per common share $ (0.05) $ (0.01)
============ ============
See accompanying notes to consolidated condensed financial statements
Page 4
</TABLE> <PAGE>
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
October 31,
1995 1994
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (199,977) $ (18,982)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 73,588 52,524
Provision for losses on accounts receivable 8,828 119,652
Changes in assets and liabilities:
Accounts Receivable 88,469 (381,337)
Supplies (12,643) 22,430
Prepaid expenses 40,603 (7,310)
Other assets (762) (84,787)
Accounts payable 4,505 136,896
Other current liabilities (75,199) (42,827)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (72,588) (203,741)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in cash overdraft 134,659 57,232
Repayment of debt (85,574) (55,288)
Payment on capital lease obligations 0 (12,531)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 49,085 (10,587)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (7,818) (22,712)
------------ ------------
NET DECREASE IN CASH (31,321) (237,040)
CASH AT BEGINNING OF PERIOD 35,279 245,639
------------ ------------
CASH AT END OF PERIOD $ 3,958 $ 8,599
============ ============
<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Cash paid for interest $ 72,507 $43,335
Purchase of fixed assets and customer list in
exchange for debt $ 187,232
Purchase of assets with long-term debt $ 100,095
See accompanying notes to consolidated condensed financial statements
Page 5
</TABLE> <PAGE>
AMERICAN CYTOGENETICS, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements for
American Cytogenetics, Inc. (the "Company"), have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Certain
reclassification of the prior year financial statements have been
made to conform such information to current period presentation. In
the opinion of management, all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation
have been made.
Income (loss) per common share is computed by dividing the net
income or loss for each period, adjusted for required preferred
stock dividends, by the weighted average number of common shares
outstanding. Income (loss) per common share does not provide for
the effects of shares issuable contingent upon the exercise of the
stock options because the effect would be immaterial or anti-
dilutive.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1995.
The results of operations for the three and nine months ended
October 31, 1995 are not necessarily indicative of the results to be
expected for the full year.
Note 2: GOING CONCERN
The Company has incurred losses from operations for the past three
fiscal years, has negative working capital and a capital deficiency.
The Company has been notified by its largest customer that, due to
budgetary shortfalls, test volume may be reduced significantly.
These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Note 3: CONTINGENCIES
On August 11, 1992, a complaint was filed, Mary Lou Back v. American
Cytogenetics, et al., Case BC061917, in the Superior Court of
California for the County of Los Angeles, against the Company,
Cancer Screening Services ("CSS"), Earl Brian, Alice Hendricks,
Liston Witherill, Allan Tessler, Gary Prince and Dwight Geduldig.
<PAGE>
Each of the above named individuals, except Allan Tessler, is or at
one time was a member of the Board of Directors of the Company. The
Complaint alleges that Ms. Back, who was employed as President and
Chief Executive Officer of the Company and CSS from May 1990 to
January 1992, was wrongfully terminated in violation of public
policy and various other reasons. The complaint seeks damages in
the amount of $200,000 plus punitive damages and indemnification
from Internal Revenue Service "IRS" assessments against Back for
taxes not paid by CSS. In October 1993 the court granted the
Company's motion to dismiss Back's claim for indemnification and on
March 22, 1994 the court granted the Company's motion for summary
adjudication of Back's remaining claims. Back's subsequent request
for reconsideration of the summary adjudication order has been
denied. Back has filed a Notice of Appeal. The Company has
vigorously defended the action and is unable to predict the outcome
at this time.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
Results of Operations
- ---------------------
The Company's revenues are derived from the sale of testing services
for gynecological cytology (Pap testing), certain sexually
transmitted diseases (primarily Chlamydia trachomatis) and
histopathology testing. As in years past, the majority of the
Company's revenues (approximately 70%) are derived from the sales of
Pap tests. While this represents a lower percentage than in the
past, Pap testing remains the Company's major business focus.
The Company has been notified by its largest customer that, due to
budgetary shortfalls, test volume may be reduced significantly. The
Company's primary marketing focus has been and continues to be on
publicly financed (either directly or through tax exemptions)
reproductive health agencies and organizations. The purchasing
ability of such agencies and organizations is generally dictated by
their ability to appropriate or otherwise generate funding. As
such, there is a high degree of price sensitivity in this
marketplace. Management believes that price sensitivity will
continue to be a driving factor for the foreseeable future.
The Company's ability to continue to compete successfully for this
business depends to a large extent on its ability to control costs,
particularly labor costs. In fiscal year 1991, regulations were
enacted in the State of California that limited the number of
cytology slides that a cytotechnologist could analyze in a 24-hour
period. These limits were lower than those for other states. As a
result, labor costs increased substantially, with a concomitant
negative impact on the Registrant's ability to compete in its
historical market.
<PAGE>
Management's efforts have focussed on controlling production costs
in order to improve the Company's competitive position. These
efforts include staff reorganization and increased use of automation
for administrative and reporting functions. In fiscal year 1995,
the Company established a test processing facility in Missouri in
order to increase capacity at reduced cost. During the current
fiscal year, approximately 29% of the Company's Pap tests were
performed at the new facility. However, due to reduced test volume
from the Company's largest customer management ceased operations in
the Missouri facility in October 1995.
Comparison of Three Months Ended October 31, 1995 and October 31,
1994
- -----------------------------------------------------------------
Revenues for the third quarter of fiscal year 1996 decreased
approximately $288,000 or 20% as compared to the same period in
fiscal year 1995. The lower revenues primarily reflect lower
volumes in cytology due to budgetary shortfalls from the Company's
largest customer.
Changes in revenues as compared to the same period in fiscal year
1995 by test segment are as follows: cytology revenue decreased by
approximately $248,000 due primarily to lower test volumes;
histopathology revenue decreased by approximately $11,000 due to
lower test volumes; and revenue for sexually transmitted disease
testing decreased by approximately $29,000 due to lower unit
pricing.
Total production expenses decreased approximately $202,000 or 20%
over the same period last fiscal year and production expenses as a
percent of sales remained constant. Management believes that at the
current test volumes operations at the Company's facility in
Missouri were not cost beneficial and therefore ceased operations in
October 1995.
Selling and marketing expenses decreased by approximately $24,000 or
29% due to reduced staffing as the sales and service effort to
private physicians is reduced. The Company is continuing its
efforts to attract additional cytology business.
General and administrative expenses increased by approximately
$29,000 or 10% due to expenses incurred in the current quarter
related to the management of the Missouri facility and increased
staffing associated with efforts to collect from third parties,
offset partially by decreased bad debt expense due to improved
collections on business billed directly to patients and third
parties.
<PAGE>
The approximate $10,000 increase in other expense is due to
increased interest expense as a result of the interest on a note
signed in the first quarter of the current fiscal year to finance
computer hardware necessary for the new laboratory information
system. In addition, interest expense increased due to interest on
the obligation owed to the previous owner of a customer list and
other assets purchased in October 1994.
The results of operations for the three months ended October 31,
1995 decreased by $101,000 compared with the three months ended
October 31, 1994 due primarily to reduced testing volume in
cytology.
Comparison of Nine Months Ended October 31, 1995 and October 31,
1994
- ----------------------------------------------------------------
Revenues for the first three quarters of fiscal year 1996 decreased
approximately $389,000 or 9% as compared to the same period in
fiscal year 1995. The lower revenues primarily reflect lower unit
pricing and lower volume in cytology testing.
Changes in revenues as compared to the same period in fiscal year
1995 by test segment are as follows: cytology revenue decreased by
approximately $379,000 due primarily to lower test volumes;
histopathology revenue increased by approximately $6,000 due to
higher unit pricing; and revenue for sexually transmitted disease
testing decreased by approximately $16,000 due to by lower unit
pricing, partially offset by higher test volumes.
Total production expenses decreased approximately $296,000 or 10%
over the same period last fiscal year and production expenses as a
percent of sales remained constant. Management believes that at the
current volumes operations at the Company's facility in Missouri
were not cost beneficial and therefore ceased operations in October
1995.
Selling and marketing expenses decreased by approximately $37,000 or
14% due to reduced staffing as the sales and service effort is
reduced to private physicians. The Company is continuing its
efforts to attract additional cytology business.
General and administrative expenses increased approximately $96,000
or 10% due to expenses incurred in the current period related to the
management of the Missouri facility and increased staffing
associated with efforts to collect from third parties which were
offset by decreased bad debt expense due to improved collections on
business billed directly to patients and third parties. Also
contributing to the increase when comparing the two periods was the
one time removal of approximately $48,000 of consulting expenses in
the prior period.
<PAGE>
The approximate $29,000 increase in other expense is due to
increased interest expense as a result of the interest on a note
signed in the quarter ended April 30, 1995 to finance computer
hardware necessary for the new laboratory information system. In
addition, interest expense increased due to interest on the
obligation owed to the previous owner of the customer list and
assets purchased in October 1994.
The net loss from operations for the nine months ended October 31,
1995 increased by $181,000 compared with the nine months ended
October 31, 1994 due primarily to the decreased cytology revenues
coupled with increased general and administrative expenses.
Liquidity and Capital Resources
- -------------------------------
Working capital decreased approximately $305,000 from a deficit of
approximately $273,000 at January 31, 1995 to a deficit of $578,000
at October 31, 1995 primarily as a result of the loss from
operations and the financing of the purchase of computer hardware
with a relatively short note (16 months).
Capital expenditures were approximately $108,000 and $23,000,
respectively, for the nine months ended October 31, 1995 and 1994.
Purchases in the current period were for computer hardware and
software development associated with the Company's effort to develop
a new laboratory information system. The hardware portion was
financed by lease requiring payments over 16 months.
On May 12, 1992 the Company reached an informal installment
agreement with the IRS on a payment plan for approximately $525,000
of unpaid payroll taxes, interest and penalties. The IRS has
established a lien against the company's assets for repayment of
this liability.
Management's plans include seeking and obtaining additional cash
through issuance of stock or other financing alternatives. Proceeds
from financing activities are intended to be used in paying down
debt, modernizing plant and equipment, and providing working
capital. In addition, as part of implementing management's plans,
the Company is: continuing to pursue cost reductions; continuing
renegotiations with the IRS for a more favorable settlement;
planning to obtain and implement current information technology to
reduce certain operating costs and increase billing efficiencies;
and focusing on strengthening certain operating controls.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information
On December 6, 1995 the Company entered into Letter of
Intent among Nu-Tech Bio-Med, Inc. ("NTMB") and the Company's
controlling shareholder, Infotechnology, Inc., pursuant to which the
Company, subject to the completion of a definitive agreement, will
sell shares of the unregistered previously unissued common stock of
the Company to NTMB for cash. In addition, the Company's
controlling shareholder will sell its ownership of the Company's
common and preferred stock to NTMB for a combination of cash and
NTMB common stock. Upon completion of the transaction, NTMB will
become the controlling shareholder of the Company's common and
preferred stock. No assurance can be given that such transaction
will occur in the future as the transaction requires the completion
of due diligence procedures and consent of the Company, NTMB and the
Company's controlling shareholder.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Exhibits: None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AMERICAN CYTOGENETICS, INC.
Dated: December 15, 1995 /s/ Eric W. Hoffman
-----------------------
Eric W. Hoffman
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
American Cytogenetics, Inc. Financial Data Schedule
to accompany Form 10-Q for the period ended October 31, 1995
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> OCT-31-1995
<CASH> 3,958
<SECURITIES> 0
<RECEIVABLES> 678,271
<ALLOWANCES> 405,330
<INVENTORY> 0
<CURRENT-ASSETS> 805,178
<PP&E> 659,906
<DEPRECIATION> 390,819
<TOTAL-ASSETS> 1,217,070
<CURRENT-LIABILITIES> 1,383,552
<BONDS> 0
<COMMON> 45,405
0
329,880
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,217,070
<SALES> 3,783,384
<TOTAL-REVENUES> 3,783,384
<CGS> 2,636,004
<TOTAL-COSTS> 3,910,854
<OTHER-EXPENSES> 72,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,507
<INCOME-PRETAX> (199,977)
<INCOME-TAX> 0
<INCOME-CONTINUING> (199,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (199,977)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
